I. Field of the Invention
This invention generally relates to financial data processing systems and, more particularly, to a method and apparatus for monitoring guaranteed loans and notifying guarantors.
II. Background and Material Information
Many loans require a guarantor to guarantee the payback of the loan granted to a loan recipient. The guarantor may be an individual, a company or any other type of entity. Typically, lending institutions require the guarantor's backing on a loan because the loan recipient does not meet certain credit criteria established by the lending institution. For example, a business or person receiving a loan may have a poor credit history, one or more bankruptcy filings, low or no income stream, or other characteristics that make funding the loan risky. The guarantor helps the loan recipient qualify for a loan, despite these potentially higher risk factors, based on the guarantor's creditworthiness and willingness to guarantee payback of the loan in the event the loan recipient defaults on the loan.
Loans guaranteed by a guarantor include small credit card loans to large real estate loans. In each case, the loan recipient has the primary responsibility for paying back the loan according to the loan terms. If the loan recipient pays the loan according to the terms, the guarantor has no financial obligation to the lending institution. However, the guarantor may become financially liable if the loan recipient fails to pay installments on the loan or otherwise does not meet the terms of the loan. In the latter situation, the lending institution may look to the guarantor as the secondary party responsible for paying back the balance of the loan.
The guarantor may be unpleasantly surprised with the additional financial responsibility of satisfying the loan recipient's obligations. Unfortunately, in many cases, it may be too late for the guarantor to work with the loan recipient to pay back the loan amount or to restructure the terms of the debt. As a result, without sufficient warning or notification, the guarantor will have no choice but to payoff the loan recipient's debt.
In view of the foregoing limitations, there is a need in the financial industry to inform a guarantor that a loan recipient has failed to make payments and/or is at risk of defaulting on the loan. The guarantor could then take corrective action or steps in a timely manner to prevent the loan recipient from defaulting on the loan and eliminate the burden of paying back the loan.